Will These Stocks Keep Holding the Dow Back?

Why did these companies do badly in February?

On the whole, February was another strong month for stocks. The Dow Jones Industrials(INDEX: ^DJI) broke the 13,000 barrier, closing above the mark for the first time in more than three and a half years. Even beyond the Dow, several popular measures hit highs they hadn't seen in years.

But not all of the Dow's stocks helped the average push to new highs. Let's look more closely at the five Dow stocks that performed the worst in February to see whether there are any pitfalls looming that could endanger the bull-market rally.

Hewlett-Packard(NYSE: HPQ), down 9.5%HP investors have let their patience wear thin. After suffering through years of questionable leadership, shareholders are counting on CEO Meg Whitman to come up with a viable turnaround plan -- and do it quickly.

Wal-Mart(NYSE: WMT), down 3.7%Wal-Mart has long prided itself on offering low prices. But when prices get too low, investors get nervous.

Last month, Wal-Mart gave discouraging news on the earnings front. Although the retailer had good same-store sales -- reversing a problem that has plagued the company for years -- it had to offer big discounts during the holiday season. The resulting misses on earnings and margins, combined with downbeat guidance for 2012, have shareholders wondering whether the retail giant has lost its edge.

That said, Wal-Mart threw investors a bone earlier this week, boosting its dividend by 9%. That won't be enough to allay all concerns, but it's a nice reward for shareholders who stay the course.

The problem lately is that the ongoing planning for the restructuring has kept Kraft on the sidelines at what could be a crucial moment. The controversy over Procter & Gamble and the breaking off of its deal to sell its Pringles division to Diamond Foods would have been a perfect situation for Kraft to take advantage of -- had it had the latitude to do so. Still, the split should eventually allow both businesses to make more focused strategic moves to benefit their respective prospects.

Travelers, down 0.6%Travelers had a lousy year in 2011. Big catastrophic events gave the company its least profitable year since 2004, and as a result, it announced in February that it will cut 1,400 jobs.

Obviously, a better weather year would allow Travelers to heal its wounds. But longer-term, low interest rates also pose a threat to returns on the insurer's bond portfolio. Travelers needs several things to go its way so it can recover. For the most part, investors will just have to wait and see how the year goes.

Johnson & Johnson(NYSE: JNJ), down 0.4%Health-care giant J&J was mostly flat throughout the month. What the company needs is a catalyst to get it out of the doldrums.

One such catalyst could come from new management. J&J said CEO Bill Weldon will step down from his executive role in late April, giving way to medical-device-segment head Alex Gorsky. Although Weldon will remain as board chair, Gorsky has the experience necessary to draw customers back after a painful series of recalls. With a history of coming back from tough times, however, J&J looks like a good candidate to break out to the upside eventually.

Is March madness coming?Of course, just because these stocks dropped in February doesn't mean they'll keep underperforming in the future. March could bring a big reversal of fortune for these companies -- or a broader correction for the entire average, so add them to your watchlist of promising stocks by using the links next to their ticker symbols in this article.

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Author

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.
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